The Duty to Defend, Revisited

June 2010

As you likely know, there are many CGL policies that designate contractors as additional insureds, but only with respect to liability arising out of the operations of the named insured.

This type of policy wording is common for condominium corporations, shopping malls, and other commercial properties that have to depend on the services of maintenance contractors to comply with their statutory obligation to keep the property in a reasonably safe condition for residents, invitees and other members of the public.

Slip and fall accidents are common occurrences at many of these properties, and the issue is: where there is a slip and fall accident at the property, who has the duty to defend, the property owner’s insurer or the maintenance contractor’s insurer?

Many insurers for maintenance contractors have taken the position that so long as there is some allegation in the statement of claim that touches on some independent act of negligence on the part of the property owner, there is no duty to defend under this clause.

However, last year in Riocan Real Estate v. Lombard, Madam Justice Hennessey concluded that so long as the “true crux” of the claim falls within the scope of the duty to defend in the maintenance contractor’s policy, it is that insurer that would be obliged to defend the property owner, with the issue of indemnity to be dealt with later at trial.

In that case, since the plaintiff slipped on ice in a parking lot that was being serviced by the winter maintenance contractor, the court concluded that the accident “arose out of the operations” of the contractor, and therefore the contractor’s insurer, Lombard, had a duty to defend the property owner, Riocan. Most significantly, Madam Justice Hennessey found the duty to defend to arise even where the pleadings include claims that may be outside the policy coverage.

More recently, in SREIT (Park West Centre) Ltd. v. ING Insurance Company the Supreme Court of Nova Scotia made a similar ruling, citing the Riocan decision positively. This was another case of a slip and fall accident at a shopping mall complex.

In this case, the property owner employed a contractor to perform snow-clearing and salting at the property. The contractor’s insurance policy confirmed that the property owner was an additional insured, but only with respect to “vicarious liability arising out of operations performed” by the contractor.

ING, the insurer for the contractor, initially agreed to assume the defence of the property owners. However, the plaintiff amended the statement of claim to include allegations of negligence specific to the property owners, including the allegation that they had failed to maintain the roof gutters to manage roof water run-off. Consequently, ING refused to participate in the defence, at least with respect to those specific allegations, which it claimed fell outside the scope of its duty to defend, since its named insured had no responsibility with respect to the roof gutters.

Once again, the question for the court was what the “true nature” or “substance” of the claim was. The court found that while the amendments to the statement of claim raised a particular theory of how the ice was formed, they did not change the substance of the claim, which was that the sidewalk was icy.

As the court noted, the plaintiff was not alleging that he was hit by an icicle falling from the gutter, or that he slipped on a puddle of water from accumulated roof run-off, but rather, that he simply slipped and fell on ice, which was within the scope of the contractor’s policy.

Significantly, the court dismissed the prospect of parsing costs between the covered and non-covered portions of the claim. It concluded that the claims were “so intertwined that there is no rational or practical basis for distinguishing costs related to the covered and arguably non-covered claims.”

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